Home : Blogs : Scott Hoag : St Petersburg Real Estate Financing

What is FHA Manual Underwriting: Does Credit Score Matter?

Why do some people tell you you have "BAD credit" and others can get you approved in days? If your loan was turned down because you were told you have BAD credit, don't give up! Talk to someone that understands credit and how to minimize the effect negative items have on your credit. You may be able to qualify for rates in the 6.5%-7.0% range by doing the following:

cleaning up credit report mistakes,
write a GREAT credit explanation letter that addresses why your credit was damaged,
work with lenders that can do FHA loans and know how to manually underwrite your loan application.

We assist people in putting their best foot forward by working with future home buyers to minimize the effect of negative credit.

High credit score is NOT required to get a loan!!

(Please note: FHA mortgages in Pinellas County and the surrounding areas are limited to a maximum loan amount of $222,300. It is however possible to increase this amount if the mortgage includes 'Energy Efficient' improvements.

There are two ways that your FHA loan can be underwritten (approved).

The easiest way is to run your application through the 'Automated Underwriting' software that is now available through all major lenders. If your overall credit history and income are sufficient for 'automated' approval, then we will certainly make every attempt to run your loan through the automated software. Automated approval is preferred simply because it allows the lender to basically skip the traditional underwriting process. In other words, if we have automated approval, then the lender simply has to verify that the information we listed in your application is accurate.

However, the fact is that the vast majority of my clients do NOT have sufficient credit to be approved by the automated software, and therefore most of my FHA loans require "traditional underwriting" - also known as manual underwriting. Traditional underwriting simply is the way underwriters had to review files BEFORE we had computers .... and they are still doing exactly this same process for many FHA loan files to this day.

After all ..... the very purpose of FHA loans is to provide home buying opportunities for people who are capable of making the home payment, but cannot get approved for a conventional mortgage due to some negative credit history or a less-than-perfect employment record. Therefore, it only stands to reason that FHA underwriting will always allow time for cases that can only be approved after a hands on review of the entire file by an FHA 'Direct Endorsement' underwriter.

And, to be approved, the good news is that credit scores, known as 'FICO' scores, are just about totally irrelevant for FHA mortgage (traditional) underwriting. Derogatory credit in your background is also irrelevant - IF it can be explained AND is not likely to recur.

What IS relevant is your MOST RECENT credit history, plus your consistency in making your housing / rent payments every month, plus your total household income compared to the amount of the monthly payment for the home you wish to purchase. It really is as simple as that!

So.... stop dreaming about that DREAM HOUSE... and call me !!!

Posted by Scott Hoag on 07/12/2007 06:35 PM

Comments (32)

fha, loans, mortgage, bad credit, manual underwriting, credit score, fico

Generate short URL

Post is included in group: Active Rain Newbies
Post is included in group: All Things Florida
Post is included in group: Mortgages
Post is included in group: The Economics of Real Estate
Post is included in group: Florida Rain Makers

32 Comments on What is FHA Manual Underwriting: Does Credit Score Matter?

JUL

2007

Bad credit and high foreclosure seem to go together...I will recommend those to other mortgage companies that can teach them to lie on an application to get it to go thru...and I still sleep at night that way...Some people should just not own a house...that's why more responsible people own rental property.

You got it right Chuck, lots of people shouldn't own homes. My article is about home buyers that are told by their loan officers that they can't get a loan due to credit, when they have worked hard to pay everything on time for years, but have old, negative info that is pushing their score down. Some loan officers can be lazy and forget to check to see if there is BAD info on the credit reports.

If you have made all your payments on time for at least 12 months, everyone has an opportunity to buy a home. Just check your options and don't give up because ONE person told you they couldn't do your loan.

Scott, I would not say LAZY... but just don't understand or are not hungry enough to make it work. They got use to the way it was. Well guess what times change. Hopefully the people who just got into this for the quick cash will leave...

Well said Matthew, and thanks for the comment. I agree that LAZY is a bit harsh to describe some people that just don't choose to deal with that type of loan. If you have a great business and you choose to only work with clients that have a 700 score, GOD bless you!! I wish I had your life!

AUG

2007

Hi Scott! I am happy to have found your detailed information on manual underwriting. It is very limited to find out there even on the Internet (believe me, I have tried) for some reason. Why IS that?

I am a big Dave Ramsey, Total Money Makeover fan and he highly touts manual underwriting as an option for those who have not had the best overall financial record, but who also have tried hard to rebuild their status over time (that would be me). Aside from the information I have heard about manual underwriting on the Dave Ramsey radio show, your blog is the only other concise and detailed piece that pretty much matches what Dave has to say. My boyfriend's dad is a realtor and he seems to be stuck on the whole automated underwriting and high FICO/Beacon thing. When I asked him about manual underwriting (to get reconfirmation on what I'd already heard about it and maybe to get more info if he had it), and supplied your info to him, I was still at square one. Thank you for being one of the (what looks to be) few realtors who actively try to inform the general public about the manual underwriting option. Sometimes the dream of owning a home seems so unattainable. Especially for those of us with not the best credit histoy in the world, mediocre FICO scores, but who have reached a renewed financial status. Thanks for giving us hope!

i've been doing fha loans for close to 30 years and i'm not sure about your guidelines. the biggest issue is that derogatory credit in your background is irrelevant. that's a surprise to me. there's plenty of situations that you're not just going to be able to explain it away.

FHA is a great source for Good Credit Customers. FHA does look at the last 12 months payment history and does want to see any derrogatory credit Paid off or in some cases, I have had borrowers make payment arrangements on bad accounts and after making 6 payments they were approved to go FHA.

APR

2008

I am in the process of awaiting an approval on an FHA loan. It is currently at un underwritter and I am on pins and needles waiting. The first lender after saying it shouldn't be a problem but... My CC's were closer to the limit that they would like may be the only problem. My income to debt is a good ratio and my payment history is good except a couple back in mid 2006 I had 2 late payments however, one was not my fault (Long story) and those are only 30 days Also one collection from Western Dental which is currently being paid back (They tried to screw us on the price and when we were disputing it they threw it in collections) Anyways guy said shouldn't be too bad I will get you a pre-qual letter faxed later today, then right before he was supposed to fax he calls adn says he is not going to do it that if we get denied he looks bad. Wasn't even going to try for us. So I called someone knew I told her everything that had happened adn about the credit adn everything so she says she will give it a try. She got a refer status and referred it today but I am really really nervous I want this to go through we even have the house we want already. Making payments won't be an issue and the only reason we are close to our limits is because we were not in a hurry (We just recently month or two ago that getting a home right now was possible thanks to the FHA loan) So now I have two ways this can go approved adn before the house closes pay all the bills down 50% or they deny it and again pay down 50% and try again in 2 or 3 months and hope the house we like is still on the market. So after my novel anyone had similar cases that can help put me at ease a little. Sorry if this is meant for lenders only but I have atleast another 4 days of wait time and I am going crazy!

APR

2008

Hi Christina,

The fact that you are getting a refer isn't a big deal, ratios typically need to be 43% of gross income including all debts and mortgage. Reserves are a good compensating factor!! That means that if you have some money, it usually is better to keep it in your bank rather than pay off credit cards. That would mean if something happened, you could make a mortgage payment or 2 before things got too difficult.

The rules that loans are made by are changing all the time, so you should make sure you are working with someone that is very knowledgeable about and the underwriting conditions so you can present a loan package to the underwriters with all the potential issues addressed.

For example, a letter of explanation for why you had those late payments. A letter showing the compensating factors for the minor negatives you wrote about.

Underwriting takes a lot of time, and manual underwriting can be one of the longest waits for our clients. One lender is taking 17 days to get to FHA files!! That's business days!!

If you have already picked out a home, a good Realtor or Lender would be able to offer some creative options to make approving your contract easier for the seller. What if they made your offer and told the seller if anyone else comes along that the seller could entertain other offers until your financing was approved.

At least the seller would know how serious you were about the home.

MAY

2008

Two weeks ago the underwriter finally looked at my file and requested more documention such as a more detailed report of my 401(k) an explanation of a direct deposit (it looked to them as school funds but it is actually my fiancee's paycheck) An explanation of where a large deposit came from (tax refund) and my savings account statement (poor excuse for a savings account) Now it has been another 2 weeks and still no answer. I was worried that they were going to deny us for the high credit balances but wouldn't they have done that instead of asking for more information unrelated to credit? Now I am trying to rack my brain as to why they would deny us if they do. I am getting so anxious it is eating away at me I am ready to get my new home.

JUL

2008

I can relate to the last few bloggers. I am a realtor and also awaiting my final approval for an FHA loan. Financing has become a nightmare, especially when you can't get rid of your current home. Nonetheless, I am safe to assume I passed automated underwriting and am awaiting a manual double check of the file from the bank. Pins and needles puts it mildly. FHA is the BEST laons etup there is right now and I have really shopped around. THe only killer is ALL of the documentation. But, if we are lucky enough to score and FHA loan (not too long ago FHA was laughed at and shunned in the biz) then we know we lucked out with a great mortgage.

JUL

2008

I too am a big Dave Ramsey fan and work with many lenders now using FHA as the new "low down payment" program. I know many people won't go the manual underwriting route simply becuase of the time involved. However, for some, waiting that extra time could mean the difference in a good rate program - especially when the buyer has good payment history to their current landlord.

Thanks for putting out some good information Scott! As a long time FHA appraiser, it is good to see mortgage professionals who understand the process!

Have a great day! - Richard Ferris - AmcAppraisalsinc.com - 877-789-5249

JUL

2008

We have been waiting 3 months for the manual underwriting process!! Can anyone tell me if this is the normal wait time??

Amy - 3 months? Sounds to me like your loan was cancelled 2 1/2 months ago and nobody called you. OR - the lender is scrambling to find another investor to fund your loan. What is the hold up and issue? You can find help here.

SEP

2008

Last Friday, We completed our closing on a FHA refinance cashout mortgage. We were told yesterday that everything went through and that the funds would be directly deposited into our checking account (we signed the direct deposit form and submitted a voided check.) Today, we learn that they will now cut checks and send them via UPS--which means that it will take longer for us have access to the money. We were told the type of loan we have does not allow funds to be directly deposited. Does this have any truth to it? I am trying to verify this so-called regulation. Thanks so much!

SEP

2008

I have a question I hope someone can help me. We filed chapter 13 over 5 years ago and paid it off a few months ago. Since then we have made payments on time on everything even 2 small credit cards we got to get our credit back on track. The only black mark is a collection for 71.00 from a vet clinic, it was paid two years ago. Now we are trying to refinance for cheaper interest rate with cash out for a new garage. We have paid 350.00 for apprasel and 100.00 application fee, the loan originator said they had a problem with the collection. So I had to get a letter from them and I explained why I didn't pay it. So its in manual underwriting. From everything I have read as long as you have paid a collection its okay getting a FHA loan but I have had nothing but problems. Our Scores are 630 and 678.. She said since the collection was after our chapter 13 it looks bad..

OCT

2008

Hi Tammy,

As it's been 2 weeks since the post, I'm sure you've gotten an answer here and apologize for the delay. I would like to offer my opinion in case you need confirmation of what you may have been told.

Whenever you have a bankruptcy, underwriters view that as a major black mark. And if you have problems after the bankruptcy, they will typically NOT loan any money to you until the bankruptcy has past. MOST lenders have a 0 tolerance for ANY late payments after bankruptcy.

The solution can be a little complicated and could take a bit of time. The easiest and best is to work with the credit bureaus to remove the negative information. You have the right to dispute any negative information that apprears on your credit and typically after payment was received, companies won't bother re-verifying an accuracy dispute by you.

I would expect that process to take 45 days and you can do the work yourself, FREE credit repair.

MAR

2009

My husband and I have pretty low scores. However we have never been a day late on the mortgage (just in hubbies name) or the car payments. My youngest son is 5 and when he was born and when he was 2 he had life threatening medical conditions that caused us to be out of work for 4 months at a minimum each time. We lived on credit cards but have since paid off $20,000 in debt. We have had some late payments in the last couple of years because savings and everything was wiped out. We even took a loan on my husband's 401k to help get back on track. We are needing to do a cash out refinance to add on as my husband's job is now requiring a home office. We have gross income of 110,000.00. He has been with his company 12 years and I am a federal employee with only 2 employers in the last 10 years. We are trying to get the refinance at 150,000 with our mortgage balance at 85,000. We were denied at his credit union b/c of late payments on student loan - it was actually in forbearance and it did not show on the credit report - it showed as late and it now has been paid in full. Do you have any suggestions? I also considered possibly me buying the house from my husband - my name is not on the mortgage now he bought it before we were dating. Is that the better option? Both of our scores are a little under 600. It seems like we can not do anything to bring them up. HELP!!!! We have great secure jobs and all together have paid close to 45,000.00 in medical bills and credit cards off in the last 5 years. Other than my student loan - which I am current on, 2 car payments and the mortgage we have no other debt. Everything is paid on time.

JUN

2009

We filed chapter 13 bankruptcy and then changed it over to a Chapter 7. A foreclosure was included. It was discharged in April of this year... Do we have to wait the full 10 years before we can be eligible for even manual underwriting? We've always been on time with our rent since the foreclosure in July of '08. In fact we were always on time for the rent before we bought too, we just got behind on our mortgage due to some health issues. We have two little credit cards that we just got.

JUL

2009

We are selling a house in Hawaii to FHA borrowers. The contract price is $20k above appraisal, but the buyers are willing to come in with the extra cash. The buyers were asked to provide a letter stating why they were willing to pay the extra for the home, which they did. Now, the lender is telling the borrowers that FHA wants to speak with them (the borrowers) directly. Yet, no one from the Santa Ana center is returning phone calls to the borrowers.

I am not familiar with the FHA process, and I am in a different state receiving second-hand information from our realtor. Does anyone have an inkling about what might be going on? The loan was scheduled to close on or about July 1st and today is July 22nd.

JUL

2009

D Fuller- I'm not sure what the question is. I think it was "Does anyone have an inkling?"

The answer is, "No, not really"

Worst Real Estate market ever has a tendency to make things so fluid and changes so rapid that the answer today may not be the same tomorrow.

Regarding calling FHA, keep trying, they really do return calls. If all else fails, get the mortgage broker to call HUD in Washington DC.

Hope that helped and good luck,

Scott

AUG

2009

I was told that your office can aswer and assist with questions regarding FHA loans.

Please reply:

Can I get a FHA Loan with this background?

I have a credit scores of 679, 689, 701

I have been working as a teacher on the same job for over 10 years. My teacher salary is about 43,000 a year

I have only one debt which is a student loan which I pay $135 dollars a month. It has never been late in the last 7 years.

I have credit cards with very low balances. Most paid off monthly. The minimum payments are $15.00 a month. This makes my total debt along with student loan $207 monthly. No car loans or other type debt.

I have a savings of $8,000 dollars in a bank account.

My first problem is that I have small collection accounts from 2005. All are less than $1,000 and the total of about 4 of them together is less than $2,000.

My second major problem is that I have a separate larger collection account. It is 3,300 for an auto or auto repair. The car was in my name and my ex husband has since stop paying on it because he could not repair it. I had about 3,300 left to pay on it. That was in August of 2005. It is reported as date of last activity Jan. 2006. I do not have the vehicle and have been divorced since 2002. This collection is at least 3 or 4 years old. I have made all payments on time including rent for the past 3years. Can i get approved for an fha loan? Also why does FHA loans approve people who had bankruptcy after 2 years and someone who had a foreclosure after 3 years but refuse and or require an explanation for collection accounts for upt to 7 years? Was it better for me to file bankruptcy or allow a foreclosure in 2005 or 2006 than it was to try to reestablish credit paying who I could? I really want to buy a home. Please respond soon.

SEP

2009

I signed a contract for a house that is for sale by owner. No earnest money was put down.The contract has an expiration date of September 30th. I was told to take the contract to my lender. I later found another house the next day. I did not take the contract to my lender.There were no lawyers or realtors involved. Am I obligated to buy the first house? what am i legally obliged to do? I am still in possession of the contract. The sellers are waiting for me to let them know about the progress of my loan. I will contact my lawyer tomorrow.The sellers do not have a copy of the contract with my signature. But, I want to do the right thing

i will not get a loan until after their contract date is expired. I can't buy a house if i don't have a loan.
They were not wise also. They should have requested earnest money. I would have gladly allowed them to keep it if it was 1000 or less

OCT

2009

Hi Scott

I have been searching the net trying to find someway or someone willing to help buy a home. I've been working to fix my credit for about a year. I messed it up when I was younger, credit card debit mostly. Anyhow I have had the same job for 3 years, I have a loan for my car (with a consigner) and in Feb. I will have paid montly payments for 4 years straight (only like 20 days late once 3 years ago)

Anyhow I live in OK my score is only like 595... my mother put me on a credit card with her to help my score about 4 months ago, not much impovement. I paid off all bad debit (from 2004 and 2005)but one credit card last tax season (which ended up lowering my score instead of improving it). Is there anywhere or anyone that can help? I'm not trying to buy a 200K home, more like 70K or so, something I know I can afford.... I have been told about Sect 184 loans (I have a CDIB) and FHA loans but all the lendors locally have said I must have a 620... is that true?

Any advice would be appreciated, thank you very very much!

Renee

Hi Renee

595 is very close. I had a client that told me her Trans Union Credit Assure said she had a 605 and my bureau scored her at 637. You should start by letting someone like myself that has a "mortgage credit report" do a tri-merged report. Based on what you said, the paying of OLD debt lowered your score, but what happens about 2-4 months later is that your score should go higher. You may want to add a couple more positive tradelines to help yourself even further. Did you pay on a car loan? Have any current credit card debt that is close to the high credit limit on your card? There are lots of things you can work on to help your score, but the easiest way to figure out what works best is to check your specific situation. Not all lender require that score, but those that do not will typically require a larger down payment.

Hope that helps, I'll look for a follow-up email.

My cell phone is 727-644-3656

Scott

DEC

2009

Does a Preapproval from a major bank guarantee closing on a loan?

I have been working to improve my credit scores. Currently they are 681, 709, and 699. Part of the problem is that one of my cards is showing a 0 credit limit when actually it is 8500. I've been back and forth with the credit agencies, and finally found out the reason was because my card allows me to go over the limit.

I've been preapproved for a FHA loan, but I want to find out if that pretty much means I am good to go, or if there is still potential for problems with the underwriting.

Hope to get some answers on this..

Thanks!

FEB

2010

Hello Arr,

It sounds like with a 699 middle score the credit shouldn't be a concern.

I don't think working with a "major bank" will help you though. With guidelines changing not just every month, but every week, there is always a potential for problems.

I believe that the best thing you can do to have smooth sailing after you pick your home is to submit the loan package for Underwriting by providing your pay stubs, bank statements and tax returns. We try to get our Underwriters to review all our files as early in the process as possible and usually the approval is good for 90 days.

FEB

2010

Hi,

I am in the process of getting prequalified for an FHA loan. I am doing this with my fiance. We have student loan debt, and one car loan, but our debt-to-income ratio is 41%, so we meet the criteria there. I have a credit score in the 700's. My fiance, unfortunately, does not. We just paid off all of our credit card debt and his score should be moving up to about 650. That, then, will be fine as well as the minimum requirement for FHA is 620.

My problem is this: his credit history. My credit history is great, but he only had a part-time job for a few months last year and had consistently late payments from April through June. The summer before was a similar situation. He was in school and has just recently finished up--has maintained a steady full-time job since September and also still works at the other part-time job. He has not had a late payment since June 2009.

Will it be hard for him/us to get qualified? Since my credit score and history is fine, will that be seen as a good thing and will they still approve us based on that?

MAR

2010

Hello,

My husband are in the process of buying a home via the lease option to buy. We would rather obtain an fha

home, but our credit is a disaster. Due to bankruptcy and foreclosure. Can you help?

Hello,

My husband are in the process of buying a home via the lease option to buy. We would rather obtain an fha

home, but our credit is a disaster. Due to bankruptcy and foreclosure. Can you help?

AUG

2010

Hey Scott,

I am currently in negotiations with a friend of mine for a home purchase and i am having a really hard time finding a lender who provides manual underwriting. all of my scores for the big three are mid to high 700's and my wife's are mid to high 600's. we have no debt to our name and even paid off both 5 year car loans in 2.5 years. i feel pretty good about obtaining a loan but i would like to go the route of manual underwriting. i have also recently discovered that because i dont have any active credit right now my scores are droping at an alarming rate. do you know, and or suggest any lenders?....

FEB

Good info, There are 3 credit cards that I tell people to use when they want to start or improve there credit history, I am not promoting anything I just want to share this info with you. http://www.thecreditguy.tv/how-to-start-a-good-credit-history/

Leave a response…

Name:

Email:
(optional)

Comment:

What does the graphic say?

Scott Hoag

Saint Petersburg, FL

More about me…

Integrity Financial Services

Address: 13129 66th St N, Largo, FL, 33773

Office Phone: (727) 531-0000 x 511

Cell Phone: (727) 537-6598

Email Me

I specialize in helping individuals like you and families like yours find, qualify for, and own the home of their dreams with little or no money down, even with less than perfect credit.

Links

Archives

Find FL real estate agents and Saint Petersburg real estate on ActiveRain.

Disclaimer: ActiveRain Corp. does not necessarily endorse the real estate agents, loan officers and brokers listed on this site. These real estate profiles, blogs and blog entries are provided here as a courtesy to our visitors to help them make an informed decision when buying or selling a house. ActiveRain Corp. takes no responsibility for the content in these profiles, that are written by the members of this community.